Michael Hintze says Britain will be better off after Brexit

Australia's most successful hedge fund manager and a backer of the Brexit campaign says Britain's next generation will be better off after exiting the European Union.

Sir Michael Hintze, the billionaire founder of London-based credit hedge fund CQS, said Britain faced risks if it chose to leave or stay but his support of the controversial vote was "all about sovereignty and the ability to control one's destiny".

"My sense is within five to 10 years Britain will be no worse off and I sense within a generation it will be better off," he told The Australian Financial Review.

Sir Michael Hintze: "My sense is within five to 10 years Britain will be no worse off and I sense within a generation it will be better off," he said. Louise Kennerley

Sir Michael, a well-known contributor to conservative governments, donated £100,000 ($159,600) to the campaign but said he did not take an active role in pushing the case to leave.

The contribution is less than the donations made by others like Goldman Sachs and other [hedge] fund managers like Winton's David Harding to the remain campaign.

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As debate in Britain centres around whether the country should engage in a "hard" or "soft" Brexit, Prime Minister Theresa May, he says, is "very much a believer in democracy and [she has made it clear] her view is that the people have spoken, it's time to go".

'Maybe we got lucky'

Sir Michael was born in Harbin, China, before moving to Australia at a young age. He studied in Australia and served as a captain in the army before heading to Harvard, joining Goldman Sachs and founding hedge fund Convertible Quantitative Strategies.

"Maybe we got lucky but luck is opportunity meeting preparation," says Hintze who arrived in Sydney after visiting the farms he owns that span 65,000 hectares across Eastern Australia. He was due to speak at the Citi investment conference on Tuesday.

The key call, Hintze says, was made at the start of the year – to have realised a systemic collapse was not likely on China and commodities when the market had grown increasingly fearful on both fronts.

"If you looked at the global consumption curve of oil – it couldn't go to $US100 [a barrel] but by the same token it couldn't go to $US10 for a sustainable period of time," he said.

"The cost of oil is not driven by OPEC anymore, it's driven by marginal demand and supply."

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Deutsche is 'fine'

At the moment, the source of market anxiety is Deutsche Bank, whose share price has collapsed as the market questions whether its sprawling books of assets can exist in a world where capital is now constrained by new regulatory limits on absolute leverage.

The actual bank he says is "fine".

Based on CQS analysis, Deutsche Bank is liquid given it has access to funding from the German central bank and is solvent, he says. The problem is whether it has enough capital and "that is the gift of the regulators".

"There is a constraint that I am not sure is real."

Chinese banking 'won't collapse'

On China's banking system, Hintze says he disagrees with many US managers, that he respects, about its fate.

"The banking system won't collapse – the government owns both sides of the balance sheet – they own the banks and they own the SOEs who are main debtors to the banks. They could [theoretically] cancel both sides."

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Much of Hintze's views on markets are formed by studying economics and geopolitics.

He's watching the rise of populist politics in the US, Britain and even the Philippines with interest and believes one of its causes is the lack of wealth creation among the middle class.

"They are seeing globalisation taking their standard of living down even though it's increasing the overall standard of living."

A large part of the wealth divide can be attributed to central bank policies and in particular quantitative easing as central banks have figured out how to pump economies full of stimulus without creating hyperinflation.

Low rates make 'asset owners richer'

But he says it has gone on for too long and is now creating a build up of risks in the financial system as price signals are no longer emitted while assets become ever more sensitive to interest rate moves.

"It's made the asset owners richer, it hasn't necessarily made the real economy go faster and it has created greater risks. It's not a great thing at all."

Australia which is part of a global system cannot escape its effects as low interest rates have spurred rising asset prices.

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Given the earnings versus current interest rates, the affordability of Australian property "doesn't seem crazy, but what it has done is taken value from the new generation to the old generation".

As central banks admit to the limits of monetary policy, the global policy debate shifts to whether governments should instead target more spending to support the economy.

But Hintze says it's apparent from official studies that it's hard to work out transmission mechanisms of either monetary or fiscal policies.

Too much has been left to technicians with questionable models and it was time for better government, he says.

Australia didn't have a fiscal problem, yet, he said but it was crucial that it avoided a point of no return reached by other nations where it would never be able to pay off its debt.

"The debt to GDP is still able to be paid off. I have a terrible feeling they will enter a world along with every other fiat country and not be able to pay it off."

"Once you get to 100 per cent of GDP it makes it very difficult to pay off the debt. It's pure arithmetic. At what point is the tax take unable to pay off the debt to the point where you have to keep reissuing debt?"

More than 10,000 people poured into the nation's capital on the ninth day of protests over police brutality, but what awaited them was a city that no longer felt as if it was being occupied by its own country's military.